Infographic: Home Builder Confidence Hits Nine-Month High After Sluggish Winter
Lull in the housing market? What lull?
Judging by the level of confidence among home builders in the US, the sluggish real estate market we’ve been witnessing up until now seems like a distant memory.
The National Association of Home Builders’ confidence index clocked in at 59 in June, the highest it’s been in nine months. Anything over 50 means the majority of home builders are optimistic about the market for new residential construction. And the sales expectations over the next six months reached 69, according to the report based on a survey of builders.
Couple these numbers with the fact that spring has shown strong signs of continued momentum in new housing sales into the summer. New homes sales were up 6.8 percent in April, with construction spending spiking to its highest level since 2008. New home builders are reporting more committed and serious buyers, reflecting government data of a strengthened momentum in new home sales and single-family home construction.
Consistent progress in the labor market should help pick up economic activity, as employers added 280,000 jobs during the month of May, the most since December 2014. According to the US Labor Department, growth in wages has also been seen, with the average pay for civilian employees rising 4.2 percent over the first quarter of 2015 from the same time frame in 2014.
The continued low interest rates are also encouraging Americans to buy. The average rate on a 30-year fixed mortgage was 4.08 percent as of July 2, according to mortgage giant Freddie Mac. That’s still under the five-year average of 6.06 percent since the economic expansion ended in December 2007.
The draw-down of available inventory has helped push home prices up. Part of this is because of the cheaper cost to buy, as well as a big reduction in builder production from the financial crisis up to today. During this time frame, home builders only developed about half of the number of houses needed to keep up with buyer demand.
According to Fannie Mae, an estimated 1.15 million units will be built this year, but the US economy needs 1.3 million units to keep pace with population growth and housing turnover rates. The current number of forecasted building permits that will be applied for shows that 1.275 million housing units will start construction in 2015 – the first time that new home builders almost meet long-term demand needs since the 2008 financial crisis.
‘Boomerang buyers’ – those who owned a home before the financial crisis hit, then went into foreclosure – are expected to come back to the housing market. Since a foreclosure stays on a consumer’s record for seven years, those who foreclosed in 2008 will soon be able to qualify for a mortgage. And even more of these boomerang buyers are expected to return to the market next year as well.
If new home builders step up construction activity and meet the perceived demand of buyers, new jobs would be created, more material would be purchased, and the economy would inevitably experience a much-needed boost following a rather slow start to the year.